President Obama could lead a more honest debate by proposing a welfare program for those who can't get coverage – and paying for it with new taxes.

BySheldon RichmanSeptember 10, 2009

FAIRFAX, VA. — President Obama says he wants an honest debate over healthcare. I would take his plea more seriously if he gave the following speech:

"My fellow Americans, today I propose a program to help those among us who, because of an existing serious illness, do not qualify for health insurance. I do not blame insurance companies for being unwilling to write policies for existing illnesses. Forcing the companies to cover already sick people would be wrong because it would not be true insurance. Insurance is about future risk and uncertainty, not about past or present actualities. Insuring against an existing illness would be like insuring against a house fire when the house is already aflame. That makes no sense. Insurance companies are businesses in which shareholders, among whom are people living or counting on retirement accounts, have invested to make money. There is nothing wrong with that. But the companies can't make money if they are forced to cover people who have never paid premiums.

"Nevertheless, such people are ill and cannot afford coverage. They deserve our compassion and our help. So I propose a new welfare program. Yes, I said 'welfare,' for reasons that will be clear. I will recommend to Congress that everyone's taxes be raised to create a fund from which we will pay the medical bills of those whose existing illnesses prevent them from buying health insurance.

"Why do I say that everyone's taxes should be raised? Because if we as a society decide to help these unfortunate people, the burden should be spread throughout society. As tempting as it would be, it would be wrong to impose that burden on only a few segments of the population, such as the rich or the insurance companies' shareholders. Everyone should make some sacrifice in this good cause."

I would have more respect for Mr. Obama if he gave such a speech, but that doesn't mean I would agree with him. Such a program would be what 19th century French economist Frédéric Bastiat called "legal plunder" – forcibly transferring taxpayers' money to others. It would also create an incentive to hold off buying insurance until one got sick. The program fails on both moral and practical terms.

The genuine alternative to the status quo is what we do not have now: the free market – that is, the elimination of all medical-business privileges, including rigged tax laws, licensing, anticompetitive insurance regulation, and patents. We know from experience that when free markets are allowed to work, competition lowers prices, raises quality, and universalizes access. Independent mutual-aid associations would also have a large role in a free society, as they did in the past.

Yet I'd respect the speech outlined above because, unlike what Obama called for Wednesday night – regulations compelling insurance companies to cover preexisting conditions – the proposal would at least have the virtue of honesty. Obama undermines his call for honest debate when he proposes to force insurance companies to administer a covert welfare program and calls it "insurance reform."

The name, however, is not the only intellectually dishonest part of Obama's plan. He has promised that no one making less than $250,000 a year will be taxed to pay for the new medical benefits he advocates. But in fact, middle- and working-class people would pay higher taxes.

To see this, it is important to understand that any expense imposed on people indirectly by a government program is in fact an implicit tax. As the imagined Obama speech shows, the government could accomplish its objective by imposing an open tax. Either way, people face costs only because of the program.

Look at healthcare: Obama's plan to force insurance companies to cover people with preexisting conditions combined with his plan to force everyone to buy health insurance whether he or she wants it or not would impose an implicit tax on all policyholders in the form of insurance premiums that are higher than they would have been without the program. (Some would have opted out of insurance and paid nothing.) The rich would not be the only ones taxed, no matter what Obama says.

Implicit taxes are worse than open ones because people are unaware they are paying them. Therefore they would not know how much Obama's scheme truly costs. In a supposedly free and democratic society, that is just wrong. We should at least know how much government costs.

By relabeling welfare "insurance" and claiming that only the rich will pay for his plan, Obama misleads the American people when he talks about healthcare. This is strange coming from someone who insists on honesty from his opponents.